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Short-Term TSLA Price Movements - 2013

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#4,861
So was what happened after Q1 really a short squeeze? In the VW case the price came back down after the squeeze was over. There wasn't really a retreat in TSLA price since we have been breaking ATH's every month since May. Or doesn't it have to follow that patern?
 
#4,862
deonb said:
e.g. In my IRA I hold both Fidelity Contrafund and TSLA, which means I'm holding the same shares twice. So someone went and borrowed my shares from Fidelity and sold them back to me. So for the next 30 years or so, that person is going to keep paying interest to Fidelity and eventually start paying dividends to me.
Click to expand...
I've owned some Fidelity Contrafund for almost a year now...I like your scenario and am glad to be a part of it! :D
 
#4,863
Theshadows said:
So was what happened after Q1 really a short squeeze? In the VW case the price came back down after the squeeze was over. There wasn't really a retreat in TSLA price since we have been breaking ATH's every month since May. Or doesn't it have to follow that patern?
Click to expand...

It's just a longer term short squeeze.

The combination of TSLA momentum, Model S's success, Elon's trilogy, various analysts, and the DOJ loan repayment created a tremendous amount of press, which attracts long-term buy-and-hold investors. (Such as those on TMC). This reduces the available shares, which partially drives up the price.

At the same time, shorts are slowly but steadily exiting the stock because at some point it's no fun anymore to lose money just to prove a point. This also drives the available shares down and again the price up. However, unlike VW, TSLA hasn't reached that critical point where there is literally no shares available for trading anymore. VW started off at a point close to that, TSLA came from far behind due to a HUGE open short interest.

If it ever reaches such a critical point (which I think happens if open short interest ever drops below 12 million AND shorts at that point feel they don't want to risk selling back in), you may see a VW-like rapid up and down spike over a very short period of time.

Or the short interest may continue to unwind orderly beyond the point of there being no available shares to buy, but I don't think so. You're racing a short that's running for his life against a fund manager that just made a fat profit and can lazily rebalance his overweight assets in order to free up some shares. The short is much more desperate in that situation and will just try and outrun the short next to him instead of trying to outrun the bear.

One thing that COULD make it be an orderly unwind is if the shorts happen to own and then exercise shares that are held by covered calls. But covered calls are mostly going to be held by speculative longs, which again is just backed by another short, which in turn has to go find real shares to buy. But who knows, maybe enough covered calls are held by institutions and long term investors (boo) so that by exercising all of them you can cause long-term ownership to drop enough to restore a decent float. Again, I doubt it. For one thing there is a LOT of technical trading going on, and lots of multi-contract positions e.g. a bull call spread, have no direct backing shares.

So for now, all that's really standing beyond you and any of this happening is that new "wiser" shorts are opening positions that older disillusioned shorts are buying to close. But that makes the whole thing a pyramid, and it's slowly coming to an end.
 
#4,864
Great insight deonb!

On another note: In the short term, are the new options and pricing from Tesla a good or bad thing? In my opinion it's good: it shows that they are for real when it comes to minimum 25% gross margin, they are not demand constrained, but production constrained and the price increases shows confidence and that they not joking when they say 25% margin and large profits.

I see George B in this, it's like a page from Apple's playbook: Compare the iPad/iPhone 16/32/64 Gb. Each step is an additional $100 while we all know that to add 16 or 32 Gigs of memory for Apple is really maybe maximum $10 or less in cost. Still people buy the options...
 
#4,865
deonb said:
It's just a longer term short squeeze.

The combination of TSLA momentum, Model S's success, Elon's trilogy, various analysts, and the DOJ loan repayment created a tremendous amount of press, which attracts long-term buy-and-hold investors. (Such as those on TMC). This reduces the available shares, which partially drives up the price.

At the same time, shorts are slowly but steadily exiting the stock because at some point it's no fun anymore to lose money just to prove a point. This also drives the available shares down and again the price up. However, unlike VW, TSLA hasn't reached that critical point where there is literally no shares available for trading anymore. VW started off at a point close to that, TSLA came from far behind due to a HUGE open short interest.

If it ever reaches such a critical point (which I think happens if open short interest ever drops below 12 million AND shorts at that point feel they don't want to risk selling back in), you may see a VW-like rapid up and down spike over a very short period of time.

Or the short interest may continue to unwind orderly beyond the point of there being no available shares to buy, but I don't think so. You're racing a short that's running for his life against a fund manager that just made a fat profit and can lazily rebalance his overweight assets in order to free up some shares. The short is much more desperate in that situation and will just try and outrun the short next to him instead of trying to outrun the bear.

One thing that COULD make it be an orderly unwind is if the shorts happen to own and then exercise shares that are held by covered calls. But covered calls are mostly going to be held by speculative longs, which again is just backed by another short, which in turn has to go find real shares to buy. But who knows, maybe enough covered calls are held by institutions and long term investors (boo) so that by exercising all of them you can cause long-term ownership to drop enough to restore a decent float. Again, I doubt it. For one thing there is a LOT of technical trading going on, and lots of multi-contract positions e.g. a bull call spread, have no direct backing shares.

So for now, all that's really standing beyond you and any of this happening is that new "wiser" shorts are opening positions that older disillusioned shorts are buying to close. But that makes the whole thing a pyramid, and it's slowly coming to an end.
Click to expand...

Excellent info/analysis....So you long on Tesla? Prediction on what happens August 7th? Thanks
 
#4,866
austinEV said:
Yeah, I did the same thing. If the earnings are good at all I won't have to cancel the order :)

- - - Updated - - -

I think we have figured out how to increase Q3 sales... start a rumor on TMC that prices are going up...
Click to expand...

I just went to the website and there are many new options as well as previous options have had price increases. Looks like the source was good. We are interested in some of the new options I just emailed our rep to see how that's going to effect the price of the upgrades we were previously interested in.
 
#4,867
Theshadows said:
I just went to the website and there are many new options as well as previous options have had price increases. Looks like the source was good. We are interested in some of the new options I just emailed our rep to see how that's going to effect the price of the upgrades we were previously interested in.
Click to expand...
I just saw this. I happen to be near the store So I will check it out
 
#4,868
deonb said:
The combination of TSLA momentum, Model S's success, Elon's trilogy, various analysts, and the DOJ loan repayment created a tremendous amount of press, which attracts long-term buy-and-hold investors. (Such as those on TMC). This reduces the available shares, which partially drives up the price.

At the same time, shorts are slowly but steadily exiting the stock because at some point it's no fun anymore to lose money just to prove a point. This also drives the available shares down and again the price up.
Click to expand...

Agreed. LT buy-and-hold investors (true believers) are buying up stock incrementally over time as Tesla does well (and as more people buy cars and fall in love with the product/company). This creates more scarcity with the stock as the total # shares outstanding hasn't changed but the # shares available to trade in a practical sense decreases because the buy-and-hold investors aren't wanting to sell.

The same thing goes with buy-and-hold institutions/funds... the more that they buy and aren't willing to sell, the less # shares available for trading... thus creating more scarcity.

deonb said:
However, unlike VW, TSLA hasn't reached that critical point where there is literally no shares available for trading anymore. VW started off at a point close to that, TSLA came from far behind due to a HUGE open short interest.

If it ever reaches such a critical point (which I think happens if open short interest ever drops below 12 million AND shorts at that point feel they don't want to risk selling back in), you may see a VW-like rapid up and down spike over a very short period of time.
Click to expand...

I agree that the large short position (18.5m shares as of 7/15/13) creates an "artificial" expansion of the # shares available (since they need to borrow and sell those shares). It adds another 18.5m shares that have been purchased, in addition to the 77m shares in the float. As shorts wind down their positions, it creates more scarcity of shares, thus drives up share price.

When you combine these two factors, then you have extra upward pressure, which is what deonb is asserting and I totally agree with:
1. More long-term buy-and-hold investors (individual and fund/institutions) buying up shares and not willing to sell.
2. Shorts inevitably having to wind down their positions, thus taking off those shares from the total # shares available (in other words decreasing the 18.5m extra shares that have been available due to shorts).

The only thing I wouldn't agree with is comparing this to the epic VW short squeeze. VW was a unique case and I don't think it represents TSLA's case very well. Porsche was attempting a take-over of VW and had effectively 74% control of the shares. 20% were held by a German state/province that was required to hold that amount, and 5% was held by index funds required to maintain VW as a proportion of their holdings. So, it left very very little shares available for the shorts to cover with.

In the case of TSLA, of the 77m shares in the float there would have to be a major institution/fund trying to capture a significant portion of the float in order (ie., more than majority) for a VW-type of squeeze to happen, and even in that case I don't think it would compare to the magnitude of VW's float. In TSLA's case, there might be significant long-term buy-and-hold investors but they are consolidated into a few institutions/funds that are required to hold their positions. Most investors and funds can exit the stock if they choose. That's the difference between TSLA and VW's situation. For example, if TSLA was $200+ on Monday, a lot of the long-term buy-and-hold investors (both retail and institutions) would suddenly become long-term "i believe in the company" but "I need to take some profits right now and will get back in at a lower price" people.

Btw, here's an informative article on the VW squeeze:
Financial Fraud and Securities Law : Porsche's Big "Squeeze" - the "Mother" of all Shorts - and Porsche's consequential derivative litigation
 
#4,869
Update: So I thought about this more and I think a massive, sudden squeeze (ie., VW squeeze but maybe not as drastic) if something like this happened:

"Berkshire Hathaway announces it owns 35 million shares of Tesla Motors. It has acquired the common shares on the open market over the past 2 months."

1. I admit it's very unlikely for Berkshire to buy into Tesla right now (or ever) because Buffet tends to like value and things he understands (which I don't think he gets technology). But my point of using Berkshire as an example is that they typically buy-and-hold for a very long time. So, that would in effect take 35 million off the table*. But it doesn't have to be Berkshire... it can be any investor/institution/fund that secretly amasses a huge amount of common shares in the open market with the intention of not selling until after a long time later. But the investor/fund/institution needs to be a credible long-term buy-and hold type of investor.

2. This would create panic among current TSLA stock holders. They wouldn't want to sell, especially long-term buy-and-hold investors.

3. This would create panic among the shorts. They'd try to cover their positions in mass.

In this scenario I could see the stock price doubling or tripling within a week.

*Purchasing 35m shares in the open market at $130 would cost $4.55 billion (a very manageable amount for a fund like Berkshire).
 
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#4,878
DaveT said:
In TSLA's case, there might be significant long-term buy-and-hold investors but they are consolidated into a few institutions/funds that are required to hold their positions. Most investors and funds can exit the stock if they choose. That's the difference between TSLA and VW's situation. For example, if TSLA was $200+ on Monday, a lot of the long-term buy-and-hold investors (both retail and institutions) would suddenly become long-term "i believe in the company" but "I need to take some profits right now and will get back in at a lower price" people.
Click to expand...

Yes, and no. Absolutely, some will be shaken out that way. But it all depends on how fast things happen.

Generally short term traders is what causes the market to have millisecond response time (or nanoseconds if you include arbitrage trading). If you dry up the pool of shares that's held by short-term, you don't have similar responsive backing from the long pool. I don't see a lot of people in IRA's having limit orders just in case TSLA reaches $180.

Also MANY people have recently been burned by the "need to take some profits right now and will get back in at a lower price" attitude, so at what point do you recognize a short squeeze vs. just a new base for TSLA? How many people haven't sold at $100 in the hopes of buying back in at $80? Now $105 looks like a black Friday sale. So if you see $150 on Thursday... temporary correction or new base? You don't want to make the same mistake twice. But all the time while you're struggling with your inner demons, the short's market order needs a share to buy.

Similarly I don't see Elon or other insiders having limit orders quite ready either.

So this leaves the mutual fund manager... But the fund manager will recognize the pattern of a violent short squeeze. So if TSLA advances from $140 to $170 in a matter of minutes, he's not going to put in a sell market order when the price might still go up further. Even if he changes his view from "believe in the company" to "that Gulfstream G650 sure looks shiny", he's more likely going to just put in a 3% trailing stop order. So the short isn't going to get immediate reprieve from the fund manager either.

No, the short's only immediate reprieve can come from a new short at $170, but at some point those new positions will get out of the way of the steamroller. Another 20% gap up at this point may very well form enough inspiration to stay out of the way for now.

Of course, some time during the day the news will get out, people will log into long term accounts and create sell orders. That will stop the whole process, causing those trailing stop orders to start firing, and cause it to violently crash down again. After the tornado is over the fundamental condition which caused the perfect storm setup would be corrected - which is that the % of institutional ownership dropped and is no longer backed by short positions.

But I must agree that I don't think we'll see a 500% run up and down over 2 days like with VW - you need the Buffet pure share lockup scenario for that, not just slow exits. But it's not out the question that we may see a 50% to 100% up and down correction. So far we haven't had anything close to that yet - instead short interest has just gradually been dwindling down, and institutional ownership has remain virtually unchanged since April (even though they could have booked 300% profits by now - they haven't for the most part). But that fundamentally puts those two trajectories on a collision course.
 
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#4,879
deonb said:
Yes, and no. Absolutely, some will be shaken out that way. But it all depends on how fast things happen.

Generally short term traders is what causes the market to have millisecond response time (or nanoseconds if you include arbitrage trading). If you dry up the pool of shares that's held by short-term, you don't have similar responsive backing from the long pool. I don't see a lot of people in IRA's having limit orders just in case TSLA reaches $180.

Also MANY people have recently been burned by the "need to take some profits right now and will get back in at a lower price" attitude, so at what point to you recognize a short squeeze vs. just a new base for TSLA? How many people haven't sold at $100 in the hopes of buying back in at $80? Now $105 looks like a black Friday sale. So if you see $150 on Thursday... temporary correction or new base? You don't want to make the same mistake twice. But all the time while you're struggling with your inner demons, the short's market order needs a share to buy.

Similarly I don't see Elon or other insiders having limit orders quite ready either.

So this leaves the mutual fund manager... But the fund manager will recognize the pattern of a violent short squeeze. So if TSLA advances from $140 to $170 in a matter of minutes, he's not going to put in a sell market order when the price might still go up further. Even if he changes his view from "believe in the company" to "that Gulfstream G650 sure looks shiny", he's more likely going to just put in a 3% trailing stop order. So the short isn't going to get immediate reprieve from the fund manager either.

No, the short's only immediate reprieve can come from a new short at $170, but at some point those new positions will get out of the way of the steamroller. Another 20% gap up at this point may very well form enough inspiration to stay out of the way for now.

Of course, some time during the day the news will get out, people will log into long term accounts and create sell orders. That will stop the whole process, causing those trailing stop orders to start firing, and cause it to violently crash down again. After the tornado is over the fundamental condition which caused the perfect storm setup would be corrected - which is that the % of institutional ownership dropped and is no longer backed by short positions.

But I must agree that I don't think we'll see a 500% run up and down over 2 days like with VW - you need the Buffet pure share lockup scenario for that, not just slow exits. But it's not out the question that we may see a 50% to 100% up and down correction. So far we haven't had anything close to that yet - instead short interest has just gradually been dwindling down, and institutional ownership has remain virtually unchanged since April (even though they could have booked 300% profits by now - they haven't for the most part). But that fundamentally puts those two trajectories on a collision course.
Click to expand...

You're making me feel like I should take August 8th off from work...
 
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